Southern California home prices in April surged 7.2% from a year earlier to reach an all-time high, a sharp increase at a time when rising mortgage rates are making an already pricey housing market even more so.
The region’s median sale price for new and resale houses and condos was $520,000, up $1,000 from the previous high set in March, according to a report released Wednesday by real estate data firm CoreLogic.
“It’s extremely hot,” Derek Oie, an Inland Empire real estate agent, said of the market. “When is it going to end?”
Agents say buyers are increasingly asking that question. Many economists predict that price appreciation may slow as people find it harder to afford a home, but they don’t see values falling unless the economy takes a turn for the worse.
Job growth has been steady and there are too few homes being built, experts say, creating a persistant mismatch between supply and demand.
Indeed, home sales fell 1.5% in April compared with a year earlier — possibly because the number of homes offered for sale has fallen in recent months compared to the same time in 2017, according to online brokerage Redfin. The sales drop also could signal that more buyers are struggling to afford the homes that are on the market.
Another factor arguing against a collapse of prices is that lending standards are far tighter than the last time the housing market crashed the economy.
“We are not at a breaking point yet,” said Jordan Levine, an economist with the California Assn. of Realtors. “When the inflection point is going to happen, it will have to be spurred by something outside the housing market.”
“We don’t have the ticking time bomb we had the last time around when we had a lot of folks with loans with stated income,” he said, referring to loose standards that required little evidence that buyers could afford loans during the housing bubble of the mid-2000s.
In April, the median — the price point at which half the homes sold for more and half for less — increased compared with a year earlier in all six counties included in CoreLogic’s report:
- In Los Angeles County, the median rose 7.3% to $590,000.
- Orange County, 5.9% to $715,000.
- Riverside County, 6.1% to $375,000.
- San Bernardino County, 10% to $330,000.
- Ventura County, 4.4% to $585,000.
- San Diego County, 8.6% to $570,000.
Mortgage rates have shot up since January, in large part because investors expect inflation to pick up. Last week, the average interest rate for a 30-year mortgage hit a seven-year high of 4.61%, according to Freddie Mac.
At that rate, April’s median-priced home of $520,000 would carry a $2,781 monthly mortgage payment for buyers who put 20% down. In January, the median-priced home was $507,000 and mortgage rates at the start of the month averaged 3.95%, which would translate to a monthly payment of $2,554 after putting 20% down.
Rates have hovered in the mid-3% to low-4% range in recent years. Experts say that historically low cost of borrowing, along with steady job growth and a dearth of home building, fueled the sharp rise in home prices.
Higher rates could cut into buyer demand and slow the price climb.
The real-world evidence for that is still murky. Some Southern California real estate agents say the surge in mortgage rates is causing would-be buyers to bid less for homes or put their searches on hold. But others say their clients are doing the opposite: They’re willing to stretch even further because they fear rates will climb even higher.
“The rise has gotten people off the fence,” Oie said.
Still, the Inland Empire agent doesn’t expect the current rate of appreciation to continue for long.
Oie said he’s noticing appraisals on homes increasingly coming in below the offer price and that more buyers are being asked to wave contigencies to make an offer, requiring them to make up the difference.
“I think in the back of the appraiser’s mind they know the market is overheated,” he said.
Heather Presha, a real estate agent who specializes in middle-class Leimert Park, said her clients haven’t mentioned the rise in rates as an obstacle. But some are still being priced out of the South Los Angeles neighborhood, where just a few years ago it wasn’t uncommon for single-family homes to sell for less than $600,000. Now there are no houses listed in that range; the cheapest is on the market for $700,000, according to Redfin.
To afford a house, Presha said, some people are buying duplexes in the neighborhood and using rental income from one of the units to allow them to afford a mortgage. Others are looking in cheaper neighborhoods nearby.
One investor in Leimert Park is trying to sell a three-bedroom Craftsman for $1 million.
“The prices are so crazy,” she said.
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2:50 p.m.: This article was updated with additional analysis and comment from an economist and real estate agent.
This article was originally published at 10:40 a.m.